Nordic ETF Trends 2019

The Nordic ETF Trends 2019 report highlights significant developments in the Nordic exchange-traded fund (ETF) landscape, with a strong emphasis on the growth of fixed income ETFs, ESG (environmental, social, and governance) investing, and the rising demand for bespoke ESG ETF solutions. Finnish pension funds Ilmarinen and Varma are notable for their pioneering roles in developing ESG-compliant ETFs in collaboration with asset managers like BlackRock, DWS Group, and Legal & General. These bespoke ETFs incorporate dynamic exclusion criteria overseen by sustainability committees, ensuring responsiveness to evolving ESG standards and investor expectations. The report underscores that while these ESG ETFs are gaining traction, investors like Ilmarinen and Varma are mainly transitioning from traditional passive products to more suitable ESG-focused alternatives rather than increasing their overall passive allocations.

The industry roundtable held in Stockholm brought together major ETF providers and Nordic investors to discuss key trends, including the burgeoning importance of fixed income ETFs and the potential for active management within the ETF space. Panelists agreed that fixed income ETFs have seen substantial growth due to their liquidity, cost efficiency, and role as essential portfolio building blocks. ESG investing remains a critical topic, with increased transparency and stewardship efforts cited as necessary components regardless of whether funds are active or passive. However, retail uptake of ETFs and robo-advisory services remains limited in the Nordic region compared to markets like the US, driven by trust, regulatory complexities, and the need for personal advisory options. There is anticipation that asset managers may begin to offer direct retail propositions to bridge this gap.

Additional insights from the report highlight innovations in ETF offerings, such as BlackRock's introduction of SEK-hedged bond ETFs and Lyxor's yield curve ETFs, which enable investors to express nuanced views on interest rate dynamics. Moreover, there is growing evidence of consolidation within the ETF industry alongside strategic expansions, exemplified by Goldman Sachs launching its European ETF business. The report also discusses the challenges and active management opportunities within the green bond market, emphasizing the need for a holistic, flexible approach that goes beyond index constraints to include unlabelled debt critical to the low-carbon economy. Lastly, education and engagement play central roles in fostering investor understanding and adoption of ETFs, especially in complex and evolving areas like ESG and fixed income.

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Table of content

Introduction to Nordic ETF Trends and Industry Overview

Overview of the fourth annual Nordic ETF Trends supplement, highlighting insights from investors and product providers, with focus on key drivers such as fixed income ETFs, ESG considerations, and the evolving investor landscape in the Nordic region.

Bespoke ETF Solutions for ESG-Conscious Nordic Investors

Exploration of demand for customized ESG ETFs with a spotlight on Finnish pension companies Ilmarinen and Varma partnering with asset managers like BlackRock, DWS Group, and Legal & General to develop tailored ESG-compliant ETFs addressing investor criteria and market gaps.

Innovations in ESG ETF Management and the Role of Sustainability Committees

Discussion of shortcomings in existing ESG ETFs, and the introduction of dynamic exclusion methodologies supported by expert sustainability committees, exemplified by the collaboration involving Foxberry, LGIM, and Varma to enhance ETF transparency and responsiveness in ESG criteria.

Guidance on Selecting Bond ETFs

Four key considerations for choosing bond ETFs including index alignment with risk appetite, investment methodology (physical vs. synthetic), provider scale and expertise, and cost factors, emphasizing the growing prominence of fixed income ETFs and their suitability in diversified portfolios.

Nordic ETF Industry Roundtable – Stockholm

Insights from ETF providers and investors discussing trends in fixed income ETFs, ESG integration, product innovation, pricing, client education, and the evolving usage of ETFs in portfolio construction, including challenges and opportunities in serving institutional and retail investors.

Stewardship and ESG Integration in Passive Investments

Examination of how asset managers incorporate ESG factors and stewardship activities in ETFs, underscoring the importance of engagement, proxy voting, and transparency to align passive investments with responsible investment principles.

Robo-Advisors and the Future of ETF Distribution

Analysis of robo-advisor growth in Nordic markets, barriers such as trust and regulation, and prospects for increased penetration. Discussion includes the potential for asset managers to develop direct retail propositions and the role of digital wealth services within the evolving fee-based advisory landscape.

Cost Dynamics and Service Expectations in the ETF Market

Review of trading efficiencies, fee structures, and the relationship between ETF pricing and investor expectations on service and education, highlighting industry efforts to reduce costs while providing support for innovative and niche ETF products.

Recent ETF Product Launches and Market Developments

Summary of new ETF products including SEC-hedged bond ETFs from BlackRock, sustainable ETFs from UBS Asset Management, yield curve ETFs from Lyxor, and Franklin Templeton’s launch of actively managed and smart beta ETFs in Nordic countries, reflecting ongoing innovation and expanding choices for investors.

Industry Consolidation and European ETF Market Statistics

Overview of consolidation trends in the ETF and asset management sectors, including potential sale of Lyxor Asset Management and Goldman Sachs Asset Management’s entry into the European ETF market. Statistics on ETF/ETP listings, providers, and asset flows in Europe are provided.

Active Management Opportunities in Green Bonds

Detailed examination of green bond labeling and certification processes, the limitations of passive ESG indices, and the advantages of active management in green bond portfolios. Strategies include comprehensive issuer evaluation, engagement, and capturing opportunities beyond labeled green bonds to support low-carbon economy growth.

Contact Information and Publishing Schedule

Details of Tell Media Group editorial team contacts and the 2020 Nordic Fund Selection Journal publishing timetable for industry stakeholders and readers.